RHB Raises Japan Foods Target to S$0.65 on Halal Segment Success

RHB Research on Monday (May 29) raised its target price for Japan Foods to S$0.65 from S$0.60, as it expects the company to report stronger near-term profits on the back of improving net margins and an expansion.

The research house maintained its “buy” recommendation on the Catalist-listed company, which operates restaurants including Ajisen Ramen and Tokyo Shokudo.

RHB’s higher target price accounts for an 8 percent to 9 percent increase in forecast profits for FY2024 and FY2025, after the group last Tuesday reported strong FY2023 results.

“While Japan Foods paid 85 percent of its net profit as dividends in FY2023, we expect it to maintain close to 100 percent dividend payout during the forecast period (FY2024). This implies a dividend yield of 5 percent,” said analyst Shekhar Jaiswal.

He views the stock’s current valuation – which stands at an ex-cash price-to-earnings ratio of 10.4 times based on FY2024 estimates – as “compelling”, given Japan Foods’ “robust growth potential”.

RHB is particularly bullish on the group’s halal segment, which was a key driver of revenue growth in FY2023. In its view, this segment can expect increased operational efficiency with the introduction of a central kitchen.

“The central kitchen will help to reduce food wastage and improve food safety standards,” said Jaiswal. “We believe that this will help to boost the group’s halal segment’s profitability.”

RHB also expects Japan Foods to benefit from the ongoing recovery in the F&B sector. The group has been expanding its store network, and Jaiswal believes that this will help to drive top-line growth.

“We expect Japan Foods to open 10 to 15 new stores in FY2024, and 15 to 20 new stores in FY2025,” he said. “This will help to boost the group’s top-line growth.”

Overall, RHB is positive about Japan Foods’ prospects and believes that the stock is a good investment for investors seeking exposure to the F&B sector.

In addition to the factors mentioned above, RHB also noted that Japan Foods has a strong management team with a proven track record of execution. The company has a long history of delivering strong financial results, and Jaiswal believes that this trend is likely to continue in the future.

“We are confident in the management team’s ability to execute on its growth plans,” he said. “We believe that Japan Foods is well-positioned to continue to grow its business in the years ahead.”